EconPapers    
Economics at your fingertips  
 

OPEC's crude game

Even Comfort Hvinden (even.c.hvinden@gmail.com)

No No 10/2019, Working Papers from Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School

Abstract: The market behavior nationalized oil companies in the Organization of Petroleum Exporting Countries (OPEC) is starkly time-varying. I rationalize OPEC's behavior in an infinitely repeated game of Cournot competition with imperfect monitoring, capacity constraints to output, and demand evolving as a Markov chain. I adapt the methodology of Abreu, Pearce, and Stacchetti (1990) to derive optimal symmetric equilibria. High powered incentives are created by the threat of output wars, the severity of which is endogenously determined by current and future expected market conditions. Implied price elasticities of supply increase in magnitude and may change sign under constrained incentive creation. The key empirical implication is that unanticipated changes to OPEC's strategic environment will persistently alter their behavior and create breaks in the joint stochastic distribution of equilibrium prices and quantities.

Pages: 32 pages
Date: 2019-11
New Economics Papers: this item is included in nep-com, nep-ene and nep-gth
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/11250/2630791

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bny:wpaper:0082

Access Statistics for this paper

More papers in Working Papers from Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School Contact information at EDIRC.
Bibliographic data for series maintained by Helene Olsen (helene.olsen@bi.no).

 
Page updated 2025-01-05
Handle: RePEc:bny:wpaper:0082